Blue Apron CEO on earnings: ‘What we saw in Q2 was actually very expected’

Blue Apron CEO Linda Findley Kozlowski, joins Yahoo Finance to discuss the company’s 2021 Q2 earnings, future outlook on consumer trends, and mitigating costs amid rising inflation.

Video transcript

ALEXIS CHRISTOFOROUS: Meal kit company, Blue Apron, saw its business boom during the height of the pandemic as more people cooked at home during quarantine, but holding on to that momentum is proving to be a challenge. Blue Apron swung to a loss of more than $18 million in the second quarter, while revenue fell from a year ago. Joining us now is Blue Apron CEO, Linda Findley Kozlowski. Linda, it's good to see you again.

You know, if you look behind these headline numbers, there are a lot of positives in this report, including growth in some key metrics, like average revenue per customer. But you did lose 21,000 customers in the last quarter. Why wasn't Blue Apron able to hold on to those customers and build on that number?

LINDA FINDLEY KOZLOWSKI: It's important to think about how we actually define customers and how we look at seasonality in the business. So, the reality is, what we saw in Q2 was actually very expected and in line with our guidance. So, first of all, Q2 of last year was the peak of pandemic demand. And that's when everyone saw sort of their biggest surge in pandemic demand.

So, we intentionally looked back to 2019 to think about how we could actually do a real comparison of the business. And of course, we grew over the period in 2019, if you're taking out that pandemic piece. As far as the move from Q1 to Q2, there's a lot of seasonality in the meal kit business.

The Q1 is always the biggest quarter in the meal kit business, and you see this consistently across the industry. Where you get into the second quarter, and you usually see a little bit of a drop off as people travel, et cetera. And so, people aren't as active during the second quarter and third quarter as they're traveling during the summer.

So, what we did see, however, is actually elevated demand over prior to the pandemic, prior periods. So, we see what's actually coming to fruition is exactly what we expected, which is a return to seasonality, except for the fact that we're seeing much elevated demand from preprint pandemic numbers. We're seeing some of that pandemic behavior sustained, particularly in those key customer metrics, highest average order value that we've had, and continued strength in revenue per customer, with revenue per customer hitting $330 per customer.

KRISTEN MYERS: Linda, I want to ask you about inflation. We have seen inflation in the grocery sector. We've seen shortages in supply chains, especially when it comes to transport. I'm curious to know how that's impacting Blue Apron's bottom line right now and the prices of the boxes that you can deliver to those customers.

LINDA FINDLEY KOZLOWSKI: Yeah, so, I think one of the advantages that we have is really looking at how we manage our direct supply chain. So, when you think about the two main aspects of our business, you talk about the food costs and you also talk about the logistics costs. And as we said this morning in our earnings call, we are seeing pressure, particularly on the logistics costs, which we're continuing to manage through with our logistics providers, making sure that we're being as efficient as possible in how we actually manage those logistics with our customers, trying to maintain a strong experience. But logistics is one of the areas where we're seeing some challenges that we're mitigating both through our work with managing those logistics providers directly and creating more efficiencies in the business to help manage that.

Food costs, we haven't seen as much inflationary pressures on our ingredients, in particular, because of our direct supply chain. We've been able to manage and keep the same high quality that our customers are used to. And we have seen some inflation there, but not as much of an impact on our business. However, we are actually constantly looking at how we can continue to test and manage into ways that both mitigate those costs, but also continue to create value to the customer at the right price point.

ALEXIS CHRISTOFOROUS: So, Linda, you have not yet had to pass those higher costs on to the customer? What has happened in terms of pricing with the boxes?

LINDA FINDLEY KOZLOWSKI: So, right now, the pricing of the boxes is the same, but it is something that we continue to test and make sure that we're having the right mix of food costs and logistics costs into our customers' business, as we work through the efficiencies on our side. So, we're keeping that value as high as possible. But at this point, we're still at the same price we were before.

ALEXIS CHRISTOFOROUS: Of course, I know you're always going through innovations with your menu. You added a few things over the past quarter, including these add-ons where you can add an appetizer or a dessert to your box for extra. You have something called butcher bundles. I'm curious what's in store this quarter and next, and what are some of the trends you're seeing among consumers right now? What are they really into?

LINDA FINDLEY KOZLOWSKI: Yeah, this has really been our strength, and we continue to see a lot of rewards out of our product innovation. As we've introduced a new premium products, new price points, new options for people, we're seeing again that increased AOV, increased revenue per customer, and that's all been incredibly strong.

And that's really where we're starting to see also increased retention of our customers as we engage them with these new products, and this has been our strategy all along. Really focus on long-term growth that gets us to that adjusted EBITDA profitability target next year. So, that's been a very important lever for us.

The trends we're seeing are very interesting. So, the premium products to continue to perform well and are doing quite well. Particularly, we just launched a craft burger, which is an extension of our premium line. In the two weeks that it was actually available in Q2, the sales were strong enough to actually contribute 2% of our overall AOV increase for the full quarter, even though it was only available for two weeks.

So, burger is, of course, summer. It's really popular right now. The other thing is we're seeing a lot of return to health.

And so, we're seeing a lot of people pick up on some of our healthier options, our Wellness 360 options, which represent our highest value customers, very engaged customers. A lot of fish, a lot of seafood, a lot of lighter eating coming into the summer. And those are really two of the biggest trends that we're seeing right now in consumer appetite, to be direct.

KRISTEN MYERS: I want to ask about geography in the United States, especially as we see the pandemic impacting this country a little bit differently as we see these surges around the country. I'm curious to know if there are geographical weaknesses or strengths right now to Blue Apron?

LINDA FINDLEY KOZLOWSKI: So, in general, our customer base has always been pretty evenly spread across the country. And so, we don't necessarily see differences in our normal core demographic. We tend to be attractive to urban audiences. Also attractive to rural audiences because of the uniqueness and the quality of the ingredients and the recipes in our box.

What we have been able to do is watch very carefully, both during the pandemic as things started to open, and of course, now as we're starting to see increases in the Delta variant, we are actually able to track by geography how the business is doing. And very clearly we saw, as things were opening back up again, we saw a little bit of travel behavior, but what we saw were those key customer metrics staying high. So, people are continuing to order a lot of recipes from us and continuing to add on do customizations, do the premium recipes. And so, that behavior is very promising for long-term for the business, and we're really excited about that engagement.

It didn't really waver with the reopening at all with travel. It's still very early as the country kind of grapples with the Delta variant. We're very prepared to make sure that we can meet any demand that actually comes to us. But what we're focused on most is making sure that we can keep our employees safe and safely deliver to people as they're figuring out their new sort of way of life as mask mandates open up again. But geographically, we're fairly strong again across all parts of the country, and haven't necessarily seen any significant drops or deficiencies in any one region.

ALEXIS CHRISTOFOROUS: And Linda, real quickly. In 20 seconds or less, do you see the company being able to reverse that quarterly loss this quarter, and what's the outlook for the rest of the year?

LINDA FINDLEY KOZLOWSKI: Well, again, if you look at our cash position, we've done a lot of work to sort of grow and focus on that. We've said very clearly that what we saw in Q1 was an anomaly. And we've made up for that a little bit in Q2. All of this was not only within expectations, but in many cases, better than expectations. And we continue to focus on managing that going forward, because we are targeting and have guided to getting to adjusted EBITDA profitability next year. And we're just working through those fluctuations in seasonality.

ALEXIS CHRISTOFOROUS: All right, Linda Findley Kozlowski, Blue Apron CEO. Always good to see you. Thanks for stopping by.